Implications of the recent macroeconomic policies on employment and labour market outcomes in Peru

Maria Lucia Guerra 

The study demonstrates that the Peruvian economy performed exceptionally well in recent years, averaging an annual growth rate of 6 percent between 2002 and 2009 and showed a strong resilience to the global economic crisis. Sustained high rates of growth gave way to notable employment generation that in turn contributed to poverty reduction. Although it is true that Peru was greatly favoured by a positive external environment, its economic performance owes much to the years ofpersistent implementation of favourable fiscal, monetary and external policies that were conducive to stability that laid the grounds for a healthy growth process to occur. However, growth in employment has failed to lead to a significant reduction in open unemployment rates. Between 2004 and 2009, unemployment declined by a meager 1.2 points and the overall unemployment level remains relatively high. The study analyzes the impact of macroeconomic policies on growth and employment creation in Peru. Fiscal consolidation and the adoption of a clear and transparent fiscal policy rule contributed to a virtuous cycle where growth fed into healthy fiscal policy, allowing for continuous reductions in fiscal deficit, a significant reduction in public debt, and the generation of fiscal space. This fiscal space allowed the government to increase spending in investment and targeted poverty reduction programmes. Monetary policy also played a key role in generating a stable economic environment propitious for investment and economic growth and trade openness triggered the development of a productive export sector that allowed Peru to take advantage of the favourable external environment. However, the economy remains poorly diversified and relies heavily on capital intensive export sector, which limits the capacity for greater employment generation. The real exchange rate is a potential explanation for this.

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